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Venezuela strike 'could add $2 to oil price'
Staff and wires
HONG KONG, China (CNN) -- Oil prices could rise $2 a barrel if production losses from unrest in Venezuela extend to a month or more, an Asia-based oil expert warned Tuesday. Oil is already at a two-month high as a strike in Venezuela, the world's No. 5 exporter, goes into a third week. Brent crude for January delivery closed in London Monday at $28.38 a barrel, while Nymex January crude futures in New York ended at $30.10. Paul Bernard, Hong Kong-based managing director of Asia Pacific research for Goldman Sachs, told CNN that losing Venezuela's production capacity would have a significant impact on prices. Bernard said Venezuela produced about 3.2 million barrels a day, of which about 2.8 million bpd was exported. He said a two-week delay in solving the dispute in Venezuela would add $0.80 to a barrel of crude, and if it went into a month or more, the cost would rise by $2 a barrel. But Bernard said that global oil prices would likely end 2003 about $10 a barrel lower than they are now, with the situation in Iraq resolved "one way or another" within six to nine months. Cold spellThe Venezuela supply squeeze and a severe cold spell in the United States saw heating oil jump to a 15-month high of 83.14 cents a gallon on Monday. Venezuela normally provides about 14 percent of U.S. oil imports. "The loss of short-haul heavy crude oil imports into the U.S. market is now becoming significant," J.P. Morgan's Paul Horsnell said in his latest report, Reuters reported. "None of that effect is currently in the U.S. weekly data, although it can be expected to depress imports in at least the next two weeks of data," he said. The cost of crude has risen by 20 percent in the past month because of the Venezuelan stoppage and the threat of a U.S. attack on oil-rich Iraq. Venezuelan army commandos stormed an oil tanker Sunday and arrested its striking crew as President Hugo Chavez vowed to break an opposition strike that has paralyzed the oil industry. Two oil tankers loaded over the weekend, but 40 ships were still waiting on anchor off Venezuelan export terminals. Attempts by Chavez to replace strikers with other workers have prompted shipping groups to warn that tankers attended by uncertified workers or pilots may incur insurance risks. The strike has slashed Venezuela's oil output to less than a third of normal. Army backs ChavezOn Monday Venezuela's army Monday threw its backing behind Chavez, describing the shutdown of the oil industry since December 2 as an attack against the state. Venezuelan army commander Gen. Julio Garcia Montoya said in a statement that the military opposed the strike and he urged representatives from both sides of the political divide to settle the crisis. "Venezuela's army ... has its best resources at the ready to prevent this attempt to cause the nation's social and economic collapse," Montoya said at a Caracas military base. Opposition leaders are pressing Chavez to resign and call immediate elections. They accuse him of pushing Venezuela towards economic ruin and Cuban-style communism. The U.S. Energy Department said last week it could lend crude from the national Strategic Petroleum Reserve to U.S. oil companies whose refineries are suffering a shortage of supplies from Venezuela. The Venezuelan strike came against a backdrop of lower oil output from Middle Eastern countries and supply security fears related to Iraq. The Organization of the Petroleum Exporting Countries (OPEC) last week agreed to cut oil supplies as the cartel sought to restore market confidence in its discredited system of quota limits by raising official output targets. Ministers said they were aiming for a cut of 1.7 million barrels per day (bpd), or seven percent, in their actual output. Iraq, although a member of OPEC, is not party to the deal as it continues to export some two million barrels per day under United Nations supervision. Dealers fear that this supply could be threatened by escalating tensions with the United States over weapons inspections.
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